Procurement of heavy equipment thru a loan

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Procurement of heavy equipment thru a loan

Post by Soysoy on Tue Aug 18, 2009 9:37 am

An LGU applies for a term loan with LBP to finance the procurement of 1 unit bulldozer. The LBP requires that the LGU shall first conduct a bidding before they can enter into a loan agreement.
Granting that the other requisites had been complied with by the LGU (ex. SB Resolution granting authority to the Mayor to apply for and enter into a contract of loan) had been complied with, questions:
1. Can the LGU proceed with the conduct of the bidding?
2. What will be the ABC for the procurement project, since the authority given by the SB, through a resoultion only, does not mention any amount of the loan?
3. Can the LGU award the contract even if the contract of loan has not been perfected?
4. Is it necessary to pass a supplemental PPMP/ APP?
5. What will be the consequence if the IAEB published was defective, as there was no ABC reflected therein?

I hope for the valuable inputs of the veteran posters. Salamat ha tungkay!
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Re: Procurement of heavy equipment thru a loan

Post by RDV @ GP3i on Tue Aug 18, 2009 10:32 am

Soysoy wrote:An LGU applies for a term loan with LBP to finance the procurement of 1 unit bulldozer. The LBP requires that the LGU shall first conduct a bidding before they can enter into a loan agreement.
Granting that the other requisites had been complied with by the LGU (ex. SB Resolution granting authority to the Mayor to apply for and enter into a contract of loan) had been complied with, questions:
1. Can the LGU proceed with the conduct of the bidding?
2. What will be the ABC for the procurement project, since the authority given by the SB, through a resoultion only, does not mention any amount of the loan?
3. Can the LGU award the contract even if the contract of loan has not been perfected?
4. Is it necessary to pass a supplemental PPMP/ APP?
5. What will be the consequence if the IAEB published was defective, as there was no ABC reflected therein?

I hope for the valuable inputs of the veteran posters. Salamat ha tungkay!

YES, provided that the procurement of bulldozer is included in the approved budget (Annual or Supplemental Budget) of the LGU as approved by the local sanggunian. You therefore could not bid out the project unless and until it is included in the approved budget.

The ABC should not exceed the approved budget.

Since the basis of the bidding is the approved budget, award of contract can be made even if the loan is not yet perfected.

If the procurement is not yet included in the approved APP, then there is a need to update your PPMP and APP. It is necessary, for purposes of transparency, that the ABC is known to prospective bidders.

The loan to be taken by the LGU will be used to fund the procurement, that is, to pay for the delivery of the bulldozer.
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Re: Procurement of heavy equipment thru a loan

Post by Soysoy on Wed Aug 19, 2009 9:36 am

thank you very much for the information sir.

the contract of loan stipulates that in case the item to be procured is to be imported, the opening of the letter of credit shall be coursed through them, applying the proceeds of the loan. for purposes of the applying sec. 42.5 of the old IRR, as amended, does a sight draft LC violate the requirement of the law that no payment on the letter of credit shall be made until delivery and acceptance of the goods as certified to by the procuring entity in accordance with the delivery schedule provided in the contract?

what if it is within the schedule, but the item delivered is not in accordance with the specifications as stipulated in the contract, will the payment of the LC still be effected?

also, is the release from the customs warehouse to the authorized official of the LGU already the 'acceptance' contemplated in the said Sec. 42.5?

what if the terms of the LC violates sec. 42.5, what action can the LGU take against the supplier, other LGU officials who entered into such contract and can it also take action the LBP considering that as a gov't instrumentality/ agency, it's officers and employees should be aware of the law?
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Re: Procurement of heavy equipment thru a loan

Post by engrjhez® on Wed Aug 19, 2009 10:10 am

RDV,

Is this case falling under the DBM Circular that allows posting/advertisement of ITB even without a certification of availability of funds? Coz in this case, the ABC is apparently yet to be determined depending on the loanable amount (although it is required before any procurement). Just like the "chicken and egg" analogy. Smile
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Re: Procurement of heavy equipment thru a loan

Post by RDV @ GP3i on Thu Aug 20, 2009 1:48 pm

Soysoy wrote:thank you very much for the information sir.

the contract of loan stipulates that in case the item to be procured is to be imported, the opening of the letter of credit shall be coursed through them, applying the proceeds of the loan. for purposes of the applying sec. 42.5 of the old IRR, as amended, does a sight draft LC violate the requirement of the law that no payment on the letter of credit shall be made until delivery and acceptance of the goods as certified to by the procuring entity in accordance with the delivery schedule provided in the contract?

I think, when LBP required that the opening of the LC be coursed thru the bank, if the item to be procured is to be imported, it only means that the LGU will open the LC with the LBP. It does not mean actual payment of the LC yet since there is no actual delivery yet. If LBP is the paying bank, it should not pay the supplier until it has not yet receive the LGUs advice for payment (based on actual delivery and acceptance) of the imported goods.

Soysoy wrote:what if it is within the schedule, but the item delivered is not in accordance with the specifications as stipulated in the contract, will the payment of the LC still be effected?

also, is the release from the customs warehouse to the authorized official of the LGU already the 'acceptance' contemplated in the said Sec. 42.5?

what if the terms of the LC violates sec. 42.5, what action can the LGU take against the supplier, other LGU officials who entered into such contract and can it also take action the LBP considering that as a gov't instrumentality/ agency, it's officers and employees should be aware of the law?

As you pointed out, Sec. 42.5 provides that , no payment of the LC shall be made until actual delivery and acceptance of the goods. If the goods delivered are not in accordance with the specifications, it should not have been accepted by the LGU and no payment on the LC should have been made. The evidence for the "acceptance" of the goods would be the issuance of a Certificate of Acceptance.
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Re: Procurement of heavy equipment thru a loan

Post by RDV @ GP3i on Thu Aug 20, 2009 1:56 pm

engrjhez wrote:
RDV,

Is this case falling under the DBM Circular that allows posting/advertisement of ITB even without a certification of availability of funds? Coz in this case, the ABC is apparently yet to be determined depending on the loanable amount (although it is required before any procurement). Just like the "chicken and egg" analogy. Smile

The ABC should not be based on the amount of the loan but on the approved budget of the LGU. The certification of availability of funds is on the available appropriation, whether in the annual budget or in a supplemental budget.

The loan is only for cash cover of such appropriation. That is the reason why LBP is requiring that the LGU conducts public bidding first before they enter into a loan agreement since the amount of loan the bank will probably approve will only be based on the contract cost.
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